NEW YORK (FORTUNE Small Business Magazine) -
Entrepreneurs tend to stay at least one step ahead of the pack, and lately they have been widening their lead. Small businesses are generating so much that's new in our economy that more and more big corporations are buying them up to gain access to their research and development. With that in mind, we found a half-dozen entrepreneurs who have a new idea, business, or invention you're bound to be hearing about over the next year or so.

Fill 'er up with caramel

Leftover halloween candy might not seem like fuel for anything but dental cavities, but Xethanol, a firm based in New York City, may change that perception.

Since 2003, Xethanol has operated two Iowa plants that can cheaply distill a gasoline additive called ethanol from bizarre sources such as stale butterscotch candy. When technicians mix the sweets with a special form of yeast, fermentation results, producing ethanol. (Typically producers of ethanol derive the clean-burning, high-octane fuel from corn.) Big oil companies then combine it with unleaded gasoline to reduce the cost of gas and the air pollution it causes.

Xethanol isn't just relying on candy for its fuel supply. This year it plans to introduce a process that will make it possible to turn all kinds of things--including cornstalks, grass clippings, and old newspapers--into ethanol. If all goes as planned, 59-year-old CEO and founder Christopher d'Arnaud-Taylor projects revenues of $15 million this year, up from $2.5 million in 2005--and the first-ever profit for Xethanol (www.xethanol.com), which he started in 2000 and took public last February. "Where there's muck, there's money," he quips.

Xethanol will use a recently discovered form of yeast to ferment various types of garbage into ethanol. It has obtained rights to the process from the U.S. Department of Agriculture, where a scientist discovered that a yeast in the intestines of a type of beetle can convert plant-based waste product into ethanol.

This year d'Arnaud-Taylor intends to begin opening plants on the East Coast that will use yeast from the beetles to brew ethanol from sludge left over from paper milling. The plants will be able to make in total more than 100 million gallons of ethanol a year. That's a trickle, considering that Americans burn nearly 21 million barrels of oil every day. But it's a start. Thanks to federal subsidies and $60-a-barrel oil, it's a seller's market for ethanol.

And even if oil prices drop below $30 a barrel, Xethanol needn't worry, say experts. "Relying on cheaper processes than competitors could help the company if prices fall," says Anthony Marchese, president of Monarch Capital Group in New York City. Good news. Unless, of course, Uncle Sam takes away those hefty subsidies.